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The Year-End 2017: An Epic Tug-of-War in the Retail World

Last year could have been a disaster for the CMBS market. While it dodged the risk retention bullet, it’s now facing headaches of a different sort, namely the potential weak performance of retail loans. Risk-retention rules, which went into effect in late 2016, were feared to wreak havoc on the market.

Many were concerned that investors would be hard pressed to come up with sufficient long-term capital to take down enough subordinate bonds to keep the market relevant.

But they came through. And private-label CMBS issuance topped $86 billion, exceeding 2016 volumes by more than 26 percent. Perhaps more impressive was the fact that 18 investors took down risk-retention pieces from 65 transactions. That doesn’t include the vertical slices that issuers retained from 56 deals.

Meanwhile, the fickle retail sector has put dozens of properties at risk. Shopping malls, once the darlings of developers and lenders, are now being avoided by most. While consumers continue to buy stuff, they’re changing the way they do it. It’s already having an impact on the CMBS sector and promises to keep industry players on their toes.

In our annual magazine, The Year-End, we’ve put together a series of articles in an effort to shine the light on the challenges the retail property sector is facing. Amazon.com is not the cause of all the sector’s ills. Our expectation is that, just like it did with the risk-retention issue, the commercial real estate sector will figure things out. But it might take some time and cause some pain.

As we’ve previously done, we’ve included insight from several industry leaders. BuildFax, for instance, found that
the issuance of retail permits is actually up, while project abandonment is down. Who would have figured that
could happen given the black eye on the sector? And EDR Insight found that despite all the negative headlines surrounding retail, 5,500 stores were slated to open last year.

We’ve also included our Year-End CMBS Awards — our league tables — in which we rank bookrunners, loan
contributors, servicers and B-piece buyers. Tops in the bookrunner race was Goldman Sachs, which took a 13.4
percent share of the market. Its activity was driven by its dominance in the large-loan sector. Overall, it contributed $11.7 billion of loans to various deals. That accounted for 13.6 percent of all securitized loans.
I hope you enjoy this edition of the Year-End and find the information we’ve compiled useful. As always, we look
forward to your feedback. Have a happy and prosperous New Year!